Fran O'Sullivan: Dinner invite measure of Key's stature

Presidential invitation a sign that China sees NZ not just as a trading partner but as a 'member of the family'.

Leaders John Key and Xi Jinping.

John Key's visit to Beijing takes place at a time when China has embarked on its most significant wave of reforms in three decades.

Chinese President Xi Jinping's invitation to John Key to join him for a private dinner this evening came too late for his officials to reschedule some relationship-smoothing meetings for dairy exporters.

But China wants to elevate its relationship with New Zealand beyond the pure bilateral to a "more strategic and globally significant" platform, according to Ambassador Wang Lutong, who categorises New Zealand as "not just a trading partner but a very close member of the family".

The Xi dinner is obviously an integral part of the stepped-up diplomatic gavotte. Key will see Xi again next week at The Hague for yet another summit along with the PM's golf buddy Barack Obama.

"China's demand for New Zealand's dairy products is uppermost for the Fonterra executives and heads of 30 or so smaller New Zealand dairy players who have come to Beijing today for what one observer dryly labelled the 'milk run'."

Fran O'Sullivan

There will be other opportunities to cement relationships at Apec - which China hosts this year - the East Asia Summit and the G20 in Australia.

This is big-picture stuff.

But China's demand for New Zealand's dairy products is uppermost for the Fonterra executives and heads of 30 or so smaller New Zealand dairy players who have come to Beijing today for what one observer dryly labelled the "milk run".

This involves meet and greets with key Chinese counterparts (Trade Minister Tim Groser will be the major player in the PM's place), an official dinner that Key will still get to and, of course, his long-heralded official explanations to the Chinese leadership over the botulism scare.

There are justifiable concerns that smaller New Zealand dairy exporters may be affected by the moves China is orchestrating to both consolidate its dairy market and control participants.

These concerns are unlikely to be totally assuaged by this visit.

Importantly, Key's visit to Beijing takes place at a time when China has embarked on its most significant wave of reforms in three decades. Finally the market will play the decisive role in the country's economic life.

That topic - as much as the issue du jour of Key's campaign to assure China's leadership and its consumers that New Zealand's strengthened food safety system will ensure there is no repeat of the Fonterra botulism scare fiasco that marred the reputation of our infant formula exports - will be canvassed at his formal talks with Xi today.

Key wants to get his own read-out on how the Chinese reforms will affect other economies, particularly New Zealand's.

"In this complex environment it might seem improbable that China would look to New Zealand for some lessons on how to handle the shift from what is still a relatively controlled economy to an environment where the market will allocate capital and resources."

Fran O'Sullivan

He is conscious that the Australian economy - which like New Zealand's has a high degree of dependency on the Chinese thirst for commodities - took a bath when China's demand for hard commodities like coal and steel fell, along with returns as new competitors entered the market.

China has issued a 60-point blueprint for the next decade called the Decision on Major Issues Concerning Comprehensively Deepening Reforms.

The blueprint emphasises "the reform of the economic system is the focus of all the efforts to deepen the all-round reform", which will allow the market to play the "decisive" role in economic life.

Wang suggests that New Zealand should now be focusing on the economic and business opportunities that will emerge from the new reform wave, particularly in the services sector.

A whole range of sectors - coal, aviation, shipping, electricity, finance and more - that were previously dominated by the state will be opened to private sector competition.

The financial markets liberalisation will result in greater exchange rate flexibility and allow the market to determine interest rates. The banking sector will not simply be dominated by the big four state-owned banks. The private sector will also get a look in.

The big picture is laid out in a joint report by China's State Council and the World Bank, which noted: "The aim is to intensify the exploitation of the 500-million strong Chinese workforce through production speed-up, streamlining and opening up the sections of the Chinese economy previously closed to global capital. It will create greater supplies of cheap labour through sweeping land reform to drive more peasants into the cities, the loosening of the One Child policy to boost population growth and a possible increase in the retirement age."

A June 2013 McKinsey report on the Chinese upper middle class spells out that business strategies are needed to reflect China's new constellation of rising incomes, shifting urban landscapes and generational change, since "millions of Chinese are trading up and becoming more picky in their tastes".

In this complex environment it might seem improbable that China would look to New Zealand for some lessons on how to handle the shift from what is still a relatively controlled economy to an environment where the market will allocate capital and resources.

But Wang says Beijing is interested in how we have managed reform. "We can learn as far as reform is concerned." He says it is not just the mindset, but also policies and systems.

Wang is clear Beijing also regards Key highly - not just as PM, but also because of his former career in international finance. He noted yesterday that Beijing's decision to agree to full convertibility of the New Zealand dollar with the renminbi will increase integration between our two financial systems.

The direct trading announcement was made by Key and Premier Li Keqiang following their bilateral meeting at the Great Hall of the People.

Fran O'Sullivan has written a weekly column for the Business Herald since its inception in April 1997. In her early journalistic career she was a political journalist in Wellington and subsequently an investigative journalist who broke many major business stories including the first articles that led to the Winebox Inquiry in both NBR and the Sydney Morning Herald. She has specific expertise in relation to China where she has been a frequent visitor since the late 1990s. She is a former Editor of the National Business Review; has twice been awarded Qantas Journalist of the Year and is a multiple winner of the Westpac Financial Journalism Supreme Award.